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Japanese Yen Futures Volatility Forecast (18/04/2011)

The last week we were expecting a further appreciation of the US Dollar against the Japanese Yen and our profit target was the 120- 121 area. Our forecast proved very profitable once again since the market opened at 118.2 rose to 119.4 and closed at 120.4 on Friday.  A very successful trade!!!

The current volatility is around 0.7% (11.1% annualised) and the TGARCH curve is now showing a downward sloping curve which should keep decreasing over the next trading days since the mean-reverting point is around the 0.48% -0.5% (7.6% – 7.9% annualised).

Consequently, a dropping volatility curve should sustain the current price area which could potentially increase even further during the next week. Particularly, the price action, which has been severely altered by the earthquake which devastated the Asian country, is trying to get back into the 122.5 area and a diminishing value of the conditional variance would act as a catalyst.

The HyperVolatility team is still bullish Japanese Yen futures and we will place some longs as soon a good opportunity will manifest. Specifically, we believe that the price will hit the 121.5 – 121.8 area by the next Friday although there might be a bit of a sideways play when futures will approach the 120.9 – 121 zone.

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